AS MORE companies and their executives begin to use Twitter in their investor relations communications, regulatory issues are becoming a pressing concern for IR professionals and in-house counsel.
While there are many complex securities law considerations that companies need to be aware of when using social media, one of the most common areas of concern is Regulation Fair Disclosure (Reg FD), which essentially requires that companies disclose important information publicly to all investors.
During a panel discussion for TheCorporateCounsel.net that I participated in last week, Tom Kim, Chief Counsel of the US Securities and Exchange Commission’s (SEC) Division of Corporation Finance provided valuable insight into how the SEC’s 2008 Reg FD interpretive guidance applies to company communications in social media.
Expressing his own opinion rather than that of the commission as a whole, Kim said the same analysis that the guidance provides for determining if information posted on a company website is public for Reg FD can be applied to new social media channels. That means that for a social media posting to be compliant with Reg FD it must 1) be published through a “recognized channel” of distribution and 2) the information must be “disseminated” in a manner designed to reach the public in general.
Kim did note that one major difference between the technologies in use today and what was prevalent in 2008 is that today’s technologies are mostly “push” oriented whereas the original guidance was largely based on a “pull” environment, with investors needing to visit companies’ websites to access the information. In other words, today’s technologies may make it easier for companies to meet at least one set of requirements under the 2008 guidance, namely that information be disseminated in a way that reaches the securities marketplace in general.
However, Kim did raise an important point about the relevance of the information that companies and executives disseminate through social media and the ability for investors to know when information is “material” or relevant to the price of a company’s stock or other securities. To me, this was perhaps his most insightful comment because it highlights the importance of companies having separate social media accounts for different audiences.
He also stressed that the most certain way for companies to make information public under Reg FD is to have the information published on the SEC’s EDGAR website. Once information is available to the public on EDGAR, companies can use any methods they wish to further distribute the information because the information is already public. For instance, tweeting a link to a new SEC filing or tweeting information contained in the same filing would be fully compliant with Reg FD.
Of course, the big question is whether a tweet by itself can make information public under Reg FD, and that isn’t a question Kim answered directly. And we shouldn’t expect him to because each question of Reg FD compliance is based on the facts and circumstances specific to an individual situation.
However, since most securities lawyers are unfamiliar with how Twitter and other social media work, I thought it would be useful to explore in more detail from a technology perspective how the SEC’s 2008 framework can be applied to Twitter.
Twitter as a ‘recognized channel’ of disclosure
The SEC’s guidance requires that companies take steps to inform investors about their Twitter account and explain how they use it for disclosure purposes. There are several ways companies might do this, including:
- Explaining in a disclosure policy posted on the company’s website how the company uses Twitter for disclosure and how investors can receive company information via Twitter.
- Providing a note in all news releases to the effect that the company uses Twitter for disclosure and investors can use its accounts to obtain new information about the company.
- Advising investors in the company’s SEC filings that the company uses Twitter for disclosure and providing the full URL/s for the relevant account/s.
- Providing prominent links to the company’s Twitter and other social media accounts on all pages of the company’s investor relations website.
- Establishing a pattern of using Twitter to disseminate company disclosure information in parallel to traditional channels.
From the guidance it’s also clear that merely telling investors that a company uses Twitter for disclosure is not by itself enough for it to be a recognized channel. You also have to know that investors are in fact using Twitter to obtain information about the company.
Establishing actual usage is much easier, more certain and more publicly accessible in social media than traditional channels. Indeed, much of the information about the usage of company social media accounts and individual messages is available to anyone who cares to look.
Here are some ways that a company can determine the extent to which investors and the marketplace in general are using its Twitter account:
- Comparing click-thru rates between Twitter messages and other channels. This is simple to measure using URL shortening services like Bit.ly that track click traffic (add a + sign to the end of any Bit.ly URL to see the click stats). Use separate short URLs in tweets, news releases, Facebook posts, email and SEC filings and then compare which channel is generating the most click activity. I strongly recommend that you use a URL shortening service that reports clicks publicly to avoid the company’s decision being second guessed by regulators and critics. Study the “referrers” statistics in your web analytics program to see which sites are sending the most traffic to your website.
- Looking at the number of followers the company’s Twitter account has relative to evidence a company has of other channels investors are using. For example, if a company typically gets 50 attendees on its earnings calls, has 300 people on an email list and has 1,000 Twitter followers, then it may be comfortable with Twitter being a recognized channel. The number and nature of the Twitter lists on which the company’s account appears also should be considered.
- Monitor the extent to which information posted on the company’s Twitter account is picked up and re-tweeted (forwarded) by other Twitter users, particularly publishers of financial news and investors.
By informing the marketplace about how your company uses Twitter and then monitoring usage of your Twitter messages relative to other channels, you will be in a position to make an informed judgment about whether your Twitter account is a recognized channel of disclosure.
Based on my research, being able to demonstrate that investors are actually using your Twitter account and particular messages may be the biggest hurdle here. I would definitely rely on click statistics more than any other metric.
Does a tweet ‘disseminate’ the information to the market?
This is a somewhat more complex analysis than determining if a company’s Twitter account is a recognized channel. We have to analyze how Twitter works and how an individual company uses its accounts. For information to be made public for the purposes of Reg FD, it must be “reasonably designed to provide broad non-exclusionary distribution of the information to the public.”
The SEC’s standard does not require the use of any form of push technology or notification for the information to be considered disseminated. On the surface, this seems like a low bar to get over; post information on a recognized channel and you’re done. But it’s not that straightforward. For instance, even if your website is a recognized channel, you cannot quietly post new material, non-public information at the bottom of a page somewhere and expect all investors to notice it. It has to be published in a way that is designed to draw investors’ attention to it and be available in a format that they can easily access and use.
Since Twitter is primarily a push technology, drawing investors’ attention to new information would seem not to be a challenge. Companies can push new information to all followers simultaneously in real time. And since Twitter is a free service that does not require any special software beyond a web browser, access is not restricted. In fact, you don’t need a Twitter account to be able to access a company’s messages on Twitter. All you need to do is visit the URL of the company’s account and you will have access to its messages.
Clearly, a company Twitter account that is a recognized channel has the capability to disseminate information in a manner that reaches the securities market in general.
However, listening to Kim last Tuesday it seemed to me that there are several considerations specific to Twitter that companies and their counsel should consider, including:
- The volume and nature of the information disseminated via the company’s Twitter account. Some companies, particularly consumer-oriented ones, have extremely busy Twitter accounts. They may send dozens of messages per day, but few if any of them are relevant to investors. If one out of every 20, 100 or 400 tweets happens to contain material, non-public information, it would be hard to argue that the information is prominent and accessible. One relevant tweet out of 20 or more is the Twitter equivalent of burying the information at the bottom of a web page that otherwise contains irrelevant information. Consequently, I’d suggest that if a company wants to be able to rely on Twitter for dissemination, then it should create an account exclusively for corporate or investor information. Several companies have done this. For example, Dell has several accounts, including one devoted to IR information.
- The extent to which the tweet is syndicated to other web channels. What happens on Twitter mostly does not stay on Twitter. At minimum, both major search engines, Google and Bing, index tweets, as do several other services. Companies themselves can, and probably should, take steps to syndicate their Twitter messages to other channels. To add Twitter messages to their websites, they can add a free Twitter widget. They can even splice tweets into their IR website RSS feeds and create email alerts for each new message. And if they also use StockTwits, messages containing their ticker symbol preceded by a $ sign will be sent to Yahoo! Finance, CNN Money, Investopedia, Bing Finance and possibly to Bloomberg as well. The same message also can be sent to their company pages on Facebook, LinkedIn, YouTube and SlideShare. In other words, one tweet can be broadly disseminated to channels that traditionally were only reachable via paid PR wires. And if the information is important, it likely will be picked up by others and shared with their networks of followers. Since creating a syndication network from a company’s Twitter account is largely free and easy to do, I’d argue that it is a prerequisite to a company being able to claim that a tweet disseminated material, non-public information in a manner designed to reach the securities marketplace in general.
- Whether the message is distributed to all followers. While the SEC’s guidance doesn’t require information to be pushed to investors to be considered disseminated, investors using Twitter will have a reasonable expectation that companies will push relevant information to all followers rather than to only some. This is an important consideration when companies are replying to questions from other users. On Twitter, responses from a company to another user via the @ command are only pushed to mutual followers. In other words, if @companyX responds to a question from @investorA, only people who are following both @companyX and @investorA will have the response pushed to them. To ensure that all followers receive the company’s response, @companyX must place a period or some other character in front of the “@investorA” response command when replying to the question. That way all of @companyX’s followers will get the message rather than just @investorA and mutual followers of @investorA and @companyX. While anyone could still see @companyX’s response by visiting its Twitter profile, it’s unreasonable to expect people to do this.
- The availability and timeliness of the tweet. It should go without saying that for a tweet to disseminate information, investors have to be able to access it. While Twitter is much more stable than it was several years ago, the risk of Twitter going down at a time when a company wants to use it to disseminate material, non-public information is a remote possibility. This is a risk inherent in Twitter’s centralized model, and it can be mitigated somewhat by using StockTwits in addition to Twitter. Of course, if Twitter is down then everyone is similarly affected and a company may need to delay disclosure and avoid selectively releasing the information through other channels until Twitter is back to normal. Finally, if a company wants to rely on a Tweet to make information public, then it will need to show that the tweet was published and disseminated prior to a subsequent selective disclosure to covered market participants. This is easy to do on Twitter and StockTwits because every message is reliably time-stamped and cannot be altered by the account holder. It’s also worth noting that StockTwits does not have a delete function, so all messages are available indefinitely.
Based on the above analysis, Twitter and StockTwits clearly are capable of disseminating material, non-public information in a manner “reasonably designed to provide broad non-exclusionary distribution of the information to the public.” In fact, the real-time dissemination that Twitter provides means that companies can disseminate new information faster and in a fairer way than any of the existing disclosure channels, including PR wire services and EDGAR.
However, to do so companies must approach their use of Twitter with a full understanding of the SEC’s guidance and the technology underlying social media. This combination of expertise is a rarity and consequently companies have been slow to change their disclosure dissemination practices. This is unfortunate because the real losers are the investors the SEC seeks to protect.
(Disclosure: I have in the past advised StockTwits on its IR services, but do not have a current consulting arrangement with the company.)